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Why we need a border breakthrough

30 November 2017
| By Pip Brooking

What a ‘no deal’ Brexit means for businesses in Northern Ireland

Businesses in Northern Ireland are getting increasingly vocal about what a ‘no deal’ Brexit would mean for them. Because it matters. The land border with the European Union brings the issues at stake into sharp relief – as does the nation’s history. And firms are already acting on their fears.

“For England, Scotland and Wales, the EU is a friend, a partner; for Northern Ireland, the EU is its next-door neighbour,” CBI director-general Carolyn Fairbairn said in a speech to Northern Irish businesses at the end of October. “The land border means it will be the very first to feel the effects if we get Brexit wrong.”

A month on, and with Northern Ireland becoming the political football of the negotiations, those businesses have yet to see a plan from government that satisfies the border issue.

Border fears

“My first concern is that the effect of a border immediately has an effect on peace and prosperity in Northern Ireland,” says Jennifer McKeever, director at Airporter, a mini bus service connecting connecting Derry/Londonderry to the Belfast Airports. Even a “virtual border” monitored by cameras could risk turning back the clock 30 years, she says.

And so much progress has been made in Northern Ireland since the Good Friday Agreement was signed in 1998.

In Northern Ireland itself, stability has made way for businesses to grow and flourish on an international stage. The turnaround is championed by the strength of the creative industries and the success of Game of Thrones filmed in Belfast, but Northern Ireland has also built a strong reputation in aerospace, cyber security and agri-tech.

More than £3bn of goods and services are exported from Northern Ireland to the Republic of Ireland each year. And an increasing number of businesses have adopted an “island of Ireland” business model, to build better economies of scale.

Anything that's going to impede efficiency of how we move goods, services or people is not going to be welcome news

“It’s a small market when you consider that the combined population on the island is no more than around 7 million people. It’s very difficult to build a sustainable business model by just looking at one particular part of the island,” says Brian Donaldson, chief executive of Maxol, which owns 35 petrol stations in Northern Ireland and just over 80 in the ROI, and supplies fuel to another 120 independently owned stations on the island.

“A no deal would bring further uncertainty and further complications in terms of how we manage our business. Anything that’s going to impede efficiency of how we move goods, services or people is not going to be welcome news,” he continues.

Already Maxol is taking a cautious approach to its investment strategy in Northern Ireland because the company doesn’t know what border controls will mean for the business. But it is also planning how to split its supply chain to service operations in the north and south independently. This is ultimately likely to increase overheads and possibly decrease choice for consumers, particularly in its fresh food offering. Decisions on that will be made early in the second quarter next year.

Food for thought

Sam Davidson, Group HR director at Henderson Group, which owns the Spar retail franchise in Northern Ireland, shares Donaldson’s concerns. 75 per cent of what it sells is sourced from the island of Ireland – and the same business model applies for many multinational suppliers.

But those lower down the supply chain, in food processing and farming, have bigger worries.

“We’re getting feedback from our Northern Ireland suppliers that a lot of the European workforce that they had went home in the summer and they haven’t come back again,” says Davidson.

That’s particularly concerning when the NI Food and Drink Association (NIFDA) says that nearly half of their members’ full-time employees and more than 9 in every 10 of their seasonal contract agricultural workers are EU nationals.

We're getting feedback from suppliers that a lot of the European workforce that they had went home in the summer and haven't come back

And farmers are also facing the threat of livestock stuck on one side of the border, while processing plants are on the other. As an example, 30 per cent of milk from Northern Ireland goes into the ROI to get processed, explains NIFDA’s chair Declan Billington, adding that the ROI produces a lot of UK butter and cheese. Under World Trade Organisation (WTO) tariffs, he believes farmers could make 50 per cent less per litre than they do now, putting their survival in doubt.

He argues that to stave off potential food shortages for the UK, Northern Ireland needs to build its own processing capability. But without clarity, “what business is going to put tens of millions of pounds into the ground to redirect the supply chains through Northern Ireland?”

He adds: “We need three years, minimum, after we have clarity on a trade agreement, to put the value-added manufacturing processes in place for the UK market. We’re on the cusp of missing the boat.”

Moving bases

For other businesses, however, it is not a case of needing to plan extra investment in Northern Ireland – but moving their investment out of the UK.

Martin Dummigan, managing director of Telestack, has put current investment plans under review and is already scoping out costs and properties so he has options ready to move his business into the ROI or overseas in the event of a no deal, or a deal where tariffs would have an adverse effect.

The firm, which designs, manufactures and installs bulk material handling systems, is growing at 23 per cent a year and Dummigan is looking to increase staff numbers from 150 to 200 over the next two years. But 40 per cent of its turnover is from Europe. “Imposition of tariffs, restrictions around customs, transportation delays, or extra administrative burdens for us or our customers could lose us that European business,” he says.

If there are going to be tariff barriers, then why would we continue to manufacture sheds for the European market in the UK

It’s a similar story for Yardmaster, the largest volume manufacturer of metal garden sheds in Europe. Growth over the past 30 years means the SME has outgrown its current site. “Before the Brexit decision, we had been planning to increase our capacity and further invest in the business, in facilities and equipment,” says managing director Keith Kyle, “but that was more or less canned.”

The company exports 50 per cent of all it makes outside the UK. It also has a French shareholding in the business and through that access to manufacturing businesses in various European countries.

“If there are going to be tariff barriers, then why would we continue to manufacture sheds for the European market in the UK, in Northern Ireland, when there’s other manufacturing space in mainland Europe?” he asks. “It’s quite difficult to put up an argument against that.”

The human impact

Northern Ireland businesses may also find it difficult to put up a fight for talent with a hard border in place. Just as Davidson believes European farmworkers are already opting to work in the ROI to avoid Brexit uncertainty, Dummigan worries for the status of one third of his workforce who are foreign.

And closer to home, Airporter’s McKeever points to the realities of workers having to travel across a border daily – or seeing real pay decrease with the weaker sterling – which could make working in Northern Ireland far less attractive for those living in the ROI.

Although it’s not something she can plan for, she already worries about a “critical lack” of bus drivers on the island of Ireland, and roughly 25 per cent of her employees live in the ROI.

We're very much sitting out on a limb in terms of competitiveness in the labour market

Maxol’s Donaldson is also looking at whether a hard border means that staff will have to spend more time away from home. Combine that with the split in supply chains he is considering, he worries it will have a negative effect on productivity and increase operating costs – at a time when the UK as a whole is desperately looking to improve its performance.

“We’re very much sitting out on a limb in terms of competitiveness in the labour market,” says Davidson. This was a problem before Brexit was even a consideration, but the focus on how to make the business environment more competitive has been superseded by current uncertainties.

Davidson adds that businesses fear Northern Ireland is “always on the to-do list” of Brexit negotiations – that it’s seen as an important, but not an urgent issue.

“That is compounded by the fact Northern Ireland doesn’t have a functioning devolved government that is able to lobby,” he says.

“I have faith in the Northern Ireland business community,” says McKeever, citing their innovation and their pragmatism to make the best of whatever situation they find themselves in. “But without some sort of a united voice here in Northern Ireland, it's going to be very difficult to get the right negotiating position for Northern Ireland.”

“The majority here hopes that we can retain as much as possible of what they have for all sorts of social, political and peace reasons,” says Davidson. “Having as little friction as possible in how we operate with our neighbours is really fundamental stuff”.